UK “bad bankers” may be forced to return the last 6 years of bonuses, as the Bank of England is seeking to make top management more responsible for the lenders’ performance and avoid a repetition of the mis-selling and rate manipulation scandals.
The ruling would cover all the 1,700 firms authorised by the Prudential Regulation Authority (PRA), such as banks, building societies, credit unions, insurers and major investment houses.
It could come into force on January 1, 2015 and the clawback could be applied to awards made before that date but which are paid after, says the Bank of England.
Reasonable evidence of “misbehavior”, huge losses or a risk-management failure are among the reasons that can leave a banker without an annual bonus.
The new legislation if applied will become the most severe clawback provisions in the world, according to Tom Gosling, a partner at PwC.
“More than any other pay requirement introduced by regulators, this will create concerns for UK banks trying to compete in territories such as the US, Asia and even other parts of the EU, where such strict rules don’t apply,” the Financial Times quotes Mr Gosling.
“We have an objective to ensure the safety and soundness of the firms we regulate and we won’t allow remuneration schemes to exist that encourage behaviour likely to jeopardise financial stability,” Andrew Bailey, Deputy Governor for Prudential Regulation and CEO of the PRA said in a statement.
“This will provide a clear message to individuals of what is expected from them and the consequences of not acting properly,” he added.
The PRA proposal will be submitted for consideration to the Parliamentary Commission on Banking Standards after a two month consultation period.
British banking is facing a major overhaul, with such giants as RBS and Barclays massively cutting their staff and looking at other ways to reduce costs. Also, some of the country’s big lenders chose to increase multi-million pound bonuses to their top management.
Rate rigging scandals are also adding pressure on the country’s lenders, as some of the large banks like Barclays and RBS are facing huge fines for manipulating some of the benchmark rates ahead of the crisis.